IIFL Finance Champions Co-Lending as Vital Catalyst for India's Last-Mile Credit Growth

DNI SUMMARY — KEY POINTS

• IIFL Finance is actively advocating for expanded co-lending models to bridge the persistent gap in last-mile credit delivery across India.
• Non-Banking Financial Companies are currently struggling with high capital costs despite significant policy efforts from the central bank authorities.
• Data indicates that bank credit to NBFCs has reached approximately 17.23 lakh crore, showing growth but reflecting ongoing institutional caution.
• Industry leaders argue that co-lending frameworks are essential to democratize access to credit for niche sectors like healthcare and energy.
• Financial experts emphasize that without deeper transmission of interest rate cuts, the reliance on bank funding remains a structural hurdle.

The landscape of Indian credit is undergoing a profound transformation as IIFL Finance positions co-lending as a strategic pillar for reaching underserved segments. While traditional banking systems have historically struggled to penetrate the deepest corners of the economy, specialized non-bank institutions are carving out niche markets. From financing stem cell storage at hospitals to supporting fishermen along the Konkan coast, these lenders have built unique product suites. However, the operational reality for these firms remains tethered to the broader availability and cost of capital from primary banking institutions.

Challenges in Capital Transmission

Navigating the funding ecosystem remains a perennial challenge for non-bank lenders operating in a high-interest environment. Even as the Reserve Bank of India has implemented significant repo rate cuts over the past fourteen months, the transmission of these benefits has been sluggish for the non-banking sector. While retail bank customers have seen relief through linked lending rates, the intermediaries themselves remain caught in a liquidity squeeze. This structural imbalance prevents lenders from passing on lower costs to the end consumers, effectively stalling the broader goal of credit democratization.

Reliance on the banking sector remains the single most defining factor for non-bank growth trajectories and market stability. As of November 2025, outstanding bank credit to this sector touched Rs 17.23 lakh crore, a marginal increase that highlights both potential and prevailing institutional hesitation. This dependency is not merely a numbers game but a determinant of the pace, pricing, and accessibility of credit. Industry participants frequently report that while their internal business pipelines appear robust, the underlying cost of capital continues to act as a significant barrier.

Dependency on Banking Institutions

Strategic partnerships through co-lending offer a viable pathway to mitigate the concentration of risk and capital constraints. By aligning with larger, liquidity-rich banks, non-bank lenders can leverage their specialized origination capabilities alongside the cheaper balance sheets of their partners. This collaborative model is increasingly viewed as the most efficient way to scale operations without succumbing to the prohibitive costs associated with traditional wholesale borrowing. It provides a synthetic relief valve, allowing credit to flow more freely into the hands of those who need it most.

Achieving genuine financial inclusion requires more than just capital infusion; it demands a fundamental rethinking of risk-sharing protocols. IIFL Finance and other industry stalwarts are pushing for policy frameworks that incentivize banks to engage deeper with the co-lending ecosystem. Such frameworks must address the asymmetry in information and the perceived risks that keep banks on the sidelines. If the current model of credit delivery is to evolve, the partnership between large-scale deposit-taking institutions and specialized credit originators must become a standard rather than an exception.

Scaling Through Strategic Partnerships

The broader economic imperative lies in ensuring that credit remains affordable for sectors that fuel grassroots development. Whether it is electric mobility, solar energy, or specialized education, the impact of high-interest rates is disproportionately felt by the smaller borrowers who form the backbone of these industries. A persistent cost-of-capital problem is not just an accounting concern for the lending firms but a brake on national productivity. Addressing this requires a synchronized effort between the central bank, commercial banks, and the non-bank entities themselves to streamline the transmission of liquidity.

Execution of credit strategies in the coming quarters will depend largely on how quickly the financial sector adapts to these collaborative models. The current sentiment remains a mix of cautious optimism and frustration as the industry waits for the institutional inertia to break. The push for co-lending is not merely a temporary tactical shift but a long-term strategic necessity to manage liquidity volatility. As stakeholders look ahead, the ability to maintain lower lending rates while managing corporate margins will be the ultimate test of resilience for these financial intermediaries.

Technological Integration and Inclusion

Future development in this sector rests on the successful integration of technology-driven underwriting and streamlined funding pathways. The industry is currently at an inflection point where the sheer scale of the credit gap necessitates a shift toward more inclusive, technology-first financial architectures. By fostering an environment where co-lending is encouraged and simplified, regulators could catalyze a new wave of growth. The goal is to create a frictionless credit market where the cost of borrowing is reflective of broader macroeconomic health rather than individual institutional constraints.